CFTC Calls for Default Judgment Against Ooki DAO in Ongoing Lawsuit

A judge ruled last month the agency had properly served the DAO after two token holders were served with the lawsuit.

AccessTimeIconJan 12, 2023 at 4:38 a.m. UTC
Updated Jan 12, 2023 at 3:43 p.m. UTC
Consensus 2023 Logo
Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28.

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

Consensus 2023 Logo
Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28.

The U.S. Commodity Futures Trading Commission (CFTC) is asking a federal judge to rule that a decentralized autonomous organization (DAO) violated federal commodities laws after it failed to respond to an ongoing lawsuit.

The CFTC, which sued Ooki DAO last year on charges of running an unregistered crypto futures trading facility and failing to conduct proper know-your-customer checks, argued in a filing Wednesday that the date for the DAO to respond – Jan. 10, 2023 – had come and gone, and said the court should enter a default judgment against the group.

"On December 20, 2022, the Court deemed service on the Ooki DAO of the Complaint and Summons in this action complete as of that date," the filing said. "Pursuant to Rule 12(a)(1)(A)(i), the Ooki DAO’s answer or other responsive pleading to the Complaint was due on or before January 10, 2023. ... The Ooki DAO failed to answer or otherwise defend as instructed by the Summons and as provided by the Rules."

Ooki DAO, a successor to a company called bZeroX, allegedly allowed U.S. persons to trade illicit crypto derivatives products. The CFTC settled charges with bZeroX and its founders, Tom Bean and Kyle Kistner, in September and attempted to sue the entire DAO at the same time. The lawsuit was served by way of a chat bot and a forum message.

Various groups of attorneys and companies in the crypto industry pushed back, arguing that a DAO cannot be treated like a person and the CFTC should have to identify the token holders behind Ooki DAO rather than serve the DAO as a whole.

While Judge William Orrick, of the U.S. District Court for the Northern District of California, initially said the CFTC should try and serve at least one token holder, he said in a Dec. 20 ruling that serving Bean and Kistner – who were still, apparently, token holders – met this requirement, despite the previous CFTC settlement and a statement from their attorney saying they had no role in the DAO.

"In this case, requiring the CFTC to serve some individual known Token Holders even after the DAO received actual notice is a belt-and-suspenders procedure to ensure that the due process requirements are met," Orrick wrote. "... The CFTC has utilized all of the information reasonably at its disposal to serve Ooki DAO, and it is clear that Ooki DAO has actual notice. Service was proper and complied with due process requirements."

The judge also pointed to "national media coverage" and the fact there were four friend-of-the-court briefs as evidence that, most likely, Ooki DAO as an entity is aware of the lawsuit against it.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.


Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.


CoinDesk - Unknown

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.